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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75772  
Subject: Re: newbie question: Traditional/Roth? Date: 11/22/2000 4:21 PM
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EditorialWe asks:

OK, I have a dumb question. I know you can withdraw money from a Roth after 5 years for, among other things, a first time home purchase.

But here's where I don't get. I opened my Roth in 2000 with $2k. Then I contribute $2k per year until 2005. Am I eligible to withdraw the whole $10k that I contributed...or just the $2k that has been in there 5 years>

Clarification welcome ...


Well, actually I'll confuse you some more. :-)

There's a difference between "qualified withdrawals" and withdrawals, and there's also a priority of withdrawal from a Roth IRA. As to priority of withdrawal, they are:

a. First from all annual contributon money.
b. Next from all conversion contribution money from the oldest to the youngest.
c. Last from earnings.

You may take your annual contribution money at any time for any purpose free of taxes and penalty. You may take your conversion contribution money without taxes but WITH an early withdrawal penalty within the first five years of the conversion, and free of taxes and penalty after five tax-years.

You may take earnings penalty and tax free only after the account has been open for five tax-years AND you have attained age 59 1/2. Do so before then, and the money will be taxed and penalized UNLESS it is a qualified distribution, then it won't be taxed or penalized. If it's not a qualified distribution but otherwise meets one of the other exceptions for an early IRA withdrawal, then the earnings will be taxed, but not penalized.

In the example you cited, all the money to be taken will be annual contribution money after five years. Therefore, neither taxes nor penalty will apply.

For details, see our IRA at http://www.fool.com/money/allaboutiras/allaboutiras.htm or read IRS Publication 590 (Individual Retirement Arrangements) available at http://www.irs.ustreas.gov/forms_pubs/pubs.html.

Regards..Pixy
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